Raising finance for SME's
Retained earnings and working capital management
Cash flow
Recievables
Payables
Negative working capital
Debt factoring
This is selling accounts receivables to a third party (factoring house)
Recourse
Factoring house will come back to the organisation in the event of non-payment by the debtor
Non-recourse
the risk of non-payment by the debtor is completely transferred to the factoring house
Bank overdraft and bank facility finances
Overdraft
Well suited for seasonal or temporary cash flow shortages
Bank finance or bank loan is a major source of funds
Bilateral facility
Syndicated finance
Lease finance
This is widely used
Finance leases
No legal ownership with all the benefits and risks associated with the leased assets being transferred to the lessee
Operating leases
Are typically short term agreements where the lessor retain the risks and benefits of the leased assets.
With operating leases the lessee is in effect borrowing the assets from the lessor and making a rental payment
Equity finance
Both private and public companies can issue shares in order to finance their operations
Ordinary shares
Gives ownership, entitlement to profit share, voting rights but no automatic entitlement to dividend earnings
Preference shares
Ownership and other benefits like ordinary shares but the rate of the dividend on preference shares is usually fixed and are payable before an ordinary share dividend would be paid
Venture capital and private equity